Consider the Basic AD/AS Macro Model,initially in a Long-Run Equilibrium

question 12

Multiple Choice

Consider the basic AD/AS macro model,initially in a long-run equilibrium.A positive AS shock will ________ the price level and ________ output in the short run.In the long run,the price level will ________ and output ________.

• A)decrease; decrease; decrease further; will decrease further
• B)decrease; increase; decrease further; will be restored to potential output
• C)decrease; increase; return to its initial level; will be restored to potential output
• D)increase; increase; decrease; will be restored to potential output
• E)increase; increase; return to its initial level; will be restored to potential output

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Definitions:

Arrangement

The act or process of organizing or ordering items, substances, or elements according to a specific pattern or sequence.

Functional Fixedness

A cognitive bias that limits a person’s ability to use an object only in the way it is traditionally used.

Mental Set

A psychological tendency to approach situations in a certain way due to past experiences or habits, which can limit problem-solving abilities.

Unnecessary Constraints

Limitations or restrictions that are not required and can hinder creativity, progress, or the achievement of goals.